Malaysia imposes 3 month ban on bauxite mining

The Malaysia government has announced a 3-month moratorium on the mining of bauxite, effective January 15.

The moratorium, which we first alerted readers to on the weekend, will not affect existing export permit holders, who can continue exporting from the stockpiles that have built up around the port. But perhaps the potentially most important part of the announcement is that there will be a ban on new export permits.

One aspect that has not come out in the major news streams is that local legal miners are due to present proposals to the Pahang State Government tomorrow. The proposals centre on new Standard Operating Procedures for mining. The fact that the local government is already seeking buy-in and ideas from the operators shows that there is some commitment to fixing the problems caused by the whole operation. As we have reported here before, the locals have complained about excessive noise and traffic from the big trucks, as well as the red dirt that pervades the township. Things came to a head last month when a pile of bauxite collapsed in heavy rain, turning the local waterways red.

In 3 months, the stockpile at port should be drastically reduced. Reliable figures are not available as to how much is in stock, but 3 months is worth about 6 million tonnes based on typical 2015 export data. The announcement says that the moratorium gives time for installation of new cleaning facilities, which will be a big help. The present-day truck cleaning process at the port was a joke, especially in the monsoons. At the mine I visited a couple of months ago, management was quite diligent about all vehicles being cleaned, but that doesn’t mean everyone else had the same controls.

The real question now is, what next? The moratorium effectively gives the Pahang government 3 months to figure out how to control mining, and how to have the ore moved to port in a way that satisfies miners, exporters and local residents. But the Pahang government has had these problems in its face for at least 12 months already, the problem being that policing has been woeful. One miner told me that of the 11 miners he knew of, only two had the necessary mining and export permits.

The locals tell me there is no question but that the ban will be enforced during the 3 months.

At the end of the 3 months, the locals will be on the lookout for some sort of improvement. They have scored a win with this moratorium, so will be keen to keep the upper hand. Miners with permits will be keen to resume. But what about the illegal mining and trucking? Will the local government be able to bring in more effective policing in 3 months? Or will they hope that the issue will die down, so that everyone can pick up where they left off?

Another complicating factor in all this is that the Royal Family of Pahang have some involvement. I understand there are royalties which now will stop. I am guessing local politicians will not want to get on the wrong side of the royal family.

From the China perspective, at a macro level a 3-month ban should have limited impact. There is something around 30 million tonnes in stockpile in China, and Malaysia will allow exports to continue. At a micro level, some Chinese players may not be so relaxed. Some companies have invested a lot of time and effort to set up supply chains from Malaysia, and no doubt will now be nervous about what happens to that investment.